Sixteen years ago Hurricane Katrina came barreling like a 350-mile-wide freight train into the Gulf Coast. In addition to the tragic loss of over 1,800 souls and the cost of property damage and other economic impacts estimated at $150 billion, the storm was a major event for the United States’ energy market, especially natural gas. In 2005, the total US dry natural gas production was at roughly 50 billion cubic feet per day (Bcf/d). And the offshore rigs that were scattered like 1,500 bits of buckshot along the Texas, Louisiana and Mississippi coasts accounted for 12 Bcf/d of that total production; two-thirds of which had to be taken off-line when the rigs in the storm’s path were shut down and evacuated. By the time Katrina finished its rampage over the Gulf, the US had lost 8 Bcf/d in natural gas production. That was sixteen percent of our total national output.
Katrina was then followed up just 18 days later by the Category 3 Hurricane Rita. Although not as deadly nor costly, Rita was for the energy industry a “here we go again” event. For the second time in a month, some 8.8 Bcf/d were shut-in.
Needless to say, natural gas prices responded accordingly. From mid-summer and into the fall of 2005, near-term cash rocketed from roughly $7.68 per million British thermal units (MMBtu) at the end of July to as high as $15.40 MMBtu by December. Prices would not retreat back to pre-hurricane levels until February 2006.
We often view fossil fuels solely as gasoline to move our vehicles, heating oil to warm our homes, natural gas to light our stoves. But a transcript of a series of October 2005 hearings held by the Senate Committee on Energy and Natural Resources after Katrina shows that consumers are much more dependent on fossil fuel byproducts — especially natural gas — than they realize. For example, the committee lists among consumer products made with materials derived from natural gas: diapers, shampoo, laundry detergent, toothpaste, beer and soda cans, milk jugs, dishwashing liquids, kitchen cabinets, paints, siding, plumbing pipes, plywood, various car parts, contact lenses, fertilizer, and the list goes on. In his book The Prize, Daniel Yergin astutely observes that we have become a new incarnation he calls “hydrocarbon man.” And so, when there is a shock to energy prices, the entire U.S. economy follows. The report concluded:
Future economic historians may very well talk about the recession of 2006-7 as being engendered by higher natural gas costs as a contributing factor.
It was, therefore, with considerable disquiet when 16 years to the day of Katrina, traders watched as Ida, another Category 4 hurricane, made landfall in the almost identical location. And yet, unlike in 2005, natural gas prices did not skyrocket. As such, the residual shock to consumers did not materialize. On the contrary, natural gas front month futures fell fifteen cents on the first trading day since Ida made landfall. As of this writing, natural gas futures have yet to print higher than $6.39 MMBtu. To be sure, these are still the highest levels traders have seen in many years. But this is due to ongoing historical low storage numbers — in part due to reduced production that followed the long period of low prices — as we enter into a possible cold winter undersupplied rather than destruction of major production capacity in the Gulf of Mexico. Still, these prices are not nearly so stratospheric as those seen in the 2005 spike. Why? Because the past 15 years have seen the most dramatic transformation of the U.S. energy industry since the advent of slant drilling. Expanded exploration revealing more reserves, fracking, and shale production made the United States one of the world’s premier energy producers.
Since Katrina/Rita, production of natural gas has almost doubled to roughly 100 Bcf/day. Meanwhile, at the same time, total output from offshore (and vulnerable) platforms declined, from 3.13 Bcf/d to just under 1 Bcf/d.
Whereas in 2005 a well-placed and powerful storm could tear a huge swath percentage-wise out of daily US energy production, today due to higher output from a broad array of sources scattered across North America, that simply is not the case. But it could be again, should aggressive policies to limit fossil fuel exploration and production in the United States through a pause on new leases and elimination of subsidies in favor of green initiatives, which is the stated goal of the current administration, be enacted.
Elon Musk is correct when he observes that taking carbon out of the ground and pumping it into the air is a foolish long-term enterprise. And in time we must gradually move to cleaner forms of renewable and sustainable energy…but without causing a shock to the system that could trigger massive economic upheaval while destroying hundreds of thousands of well-paying energy sector jobs. As has been seen with Germany’s Energiewende initiative, going green is a difficult, often muddy, process; it is a policy that still very much relies on traditional fossil fuel-fired plants to make up the slack in daily power production should the sun go down or the winds stop. And the cost is high. Germans pay on average the highest consumer electricity prices in the Developed World.
Although a noble sentiment, we as a nation that drives one-quarter of the global economy do not have a moral obligation to “lead by example” and go it alone in reducing our carbon footprint. Especially if it hurts American interests. This naïve notion must be discarded. Today the largest producer of greenhouse gasses is not the United States but China. And the CCP has shown no such grappling with their national conscience as it pumps ten gigatons of CO2 into the atmosphere each year — double the United States — to fuel their growing economy. So any global green initiative that does not address this elephant in the room is folly. It is like removing two cylinders from a V-10 engine and declaring you have done your bit to slow down the car…one that will still go another 50,000 miles on the other eight. Hurting our economy to unilaterally reduce carbon emissions is not only bad national policy, but it will also have no measurable impact on global temperatures. It is not up to the American consumer, already squeezed by the economic ramifications of lockdowns, high inflation, and stagnant wages, to take one for the team. Especially when our biggest teammate is sitting this game out.
Brad Schaeffer is an author and commodities trader. His newest novel, The Extraordinary, a story told through the eyes of autistic teen, was released in August.
The views expressed in this opinion piece are the author’s own and do not necessarily represent those of The Daily Wire.
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